International Monetary Fund Managing Director Kristalina Georgieva has warned that the Iran war will leave lasting damage on the global economy, even if a durable peace agreement is reached in the Middle East.

Speaking as a fragile ceasefire risks collapsing, Georgieva said the conflict has already caused “scarring effects” that will slow global economic growth this year more than previously expected. She noted that, without the war, the IMF had planned to upgrade its 2026 growth outlook, but now even the most optimistic scenario points to a downgrade, with no quick return to normal conditions.

Rising global oil prices and volatile financial markets have further highlighted concerns about disruptions to critical energy supplies, particularly through the Strait of Hormuz, a key route for global trade and energy transport.

Georgieva stressed that damage to infrastructure, supply chain disruptions, and declining investor confidence would have long-term economic consequences regardless of whether peace is achieved. She also warned that uncertainty remains over shipping routes, regional air traffic, and the time needed to restore damaged oil and gas facilities.

According to IMF projections, all scenarios indicate a lasting impact on global living standards. Countries that rely heavily on imported oil, along with poorer and small-island nations, are expected to be the most affected.

Georgieva urged governments to avoid unilateral actions such as export restrictions or price controls, warning that such measures could worsen global instability. Instead, she called for targeted support for vulnerable populations and responsible fiscal management, cautioning against broad subsidies or tax cuts that could fuel inflation and strain public finances.

Meanwhile, Andrew Bailey, Governor of the Bank of England, described the conflict as a “very big shock” to the global economy, noting increased market volatility and ongoing uncertainty as the situation in the Middle East continues to evolve.